Morning Must-Read: Josh Barro: David Brooks Is Wrong About Inequality

Josh Barro: David Brooks Is Wrong About Inequality:

David Brooks has a column about inequality today and it’s wrong… in a way that helps explain why conservatives have no idea how to talk about inequality. Brooks… attacks the ‘primitive zero-sum mentality’ that holds ‘growing affluence for the rich must somehow be causing the immobility of the poor’…. [But] while growing affluence for the rich isn’t causing low and moderate incomes to stagnate, they are to a large extent results of the same forces. There is a zero-sum tradeoff between the two, so a zero-sum mentality (primitive or otherwise) is called for…. Because of the declining marginal utility of money, a more unequal distribution of the returns to economic growth is undesirable, all else being equal. The question is, is all else equal? Have there been economic changes in the last four decades that make greater returns to capital necessary for innovation and growth? Or is the shift in returns just an artifact of policy choices on taxes, trade, inflation, and intellectual property that we can reverse without sinking the economy? I think the answer is probably ‘some of each’. But ‘some of each’ means there are a lot of policy choices that can and should be made to reduce inequality in a zero-sum manner.

‘The superstar effect’: ‘in an Internet economy, a few superstars in each industry can reap global gains while the average performers cannot’…. This is… in large part a reflection of intellectual property policy choices…. Governments could react to this by weakening protections for IP, since IP protections are supposed to be just strong enough to encourage the generation of good ideas…. The growth of returns to capital relative to wages is… driven in part by the fact that we have not had policies that consistently promote full employment…. Policies that promote unionization would also tend to push wages upward, at least in industries with weak competition, such as the public sector, large-scale construction, or airplane manufacturing. And of course, taxes and transfers can reduce inequality. All these policies have economic impacts beyond their distributional changes which should be considered. But adjusting them in an effort to reduce inequality isn’t just an exercise in jealousy; it’s an exercise in making the economy work for everybody….

We could improve transit links between low-income neighborhoods and job centers. Brooks is right to want to explore such policy avenues. But the availability of such policies doesn’t mean we can just wave away the zero-sum problems of, and solutions to, inequality.